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SCHWARZENEGGER PEGS CALIFORNIA BUDGET DEFICIT AT $21.3 BILLION

California Gov. Arnold Schwarzenegger told legislative leaders Monday the state’s annual income tax collections are expected to fall this year for the first time since 1938, punctuating a budget shortfall that he said will reach $21.3 billion if voters reject a slate of ballot measures next week.

With passage of the measures appearing unlikely, Schwarzenegger announced that he would release plans Thursday – five days before the May 19 special election – to show Californians the devastating consequences for government if the propositions fail.

State finance officials have been drafting plans for cuts in fire services, prisons, schools and other areas in the event that Propositions 1A through 1E, which plug a $6-billion budget hole, cannot overcome strong voter opposition reflected in recent polls.

The second scenario, if the measures pass, will still be devastating: The state budget will be $15.4 billion out of balance since Schwarzenegger and lawmakers approved it in February, administration officials said Monday. That is nearly double recent projections.

In a letter to legislative leaders, Schwarzenegger explained why state finances have plunged so quickly since he signed the spending plan intended to keep the state solvent through June of next year. Collections from personal income – which the state relies upon heavily – are expected to be lower this year than last, something that has not happened in more than 70 years, the governor wrote.

The state could find itself unable to pay bills if steps are not taken to balance the budget by early July, say finance officials.

“Absent swift action, the state will be facing a very serious cash crisis,” Schwarzenegger wrote to Democratic and Republican legislative leaders.

The governor had postponed the unveiling of his revised budget from May 14, when it normally would have been released, until May 28, nine days after the special election. In a visit to a senior center in Culver City on Monday, Schwarzenegger said he would release a summary of the two alternatives on the original date “so that people see what the difference is.”

“The way it is right now, severe cuts will happen,” he said. “And it’s important also for people to know this is not a scare tactic. This is just to let you know what could happen.”

Some of the harsh contingency plans have already leaked out and been the focus of media reports in recent days.

Jon Coupal, president of the Howard Jarvis Taxpayers Association, which is leading the opposition to the ballot measures, said it appeared that the governor was trying to politicize the budget process.

“It strikes me that the timing certainly raises the appearance of being wholly politically driven,” said Coupal, predicting the strategy would backfire. “They’re clearly trying to persuade voters to vote in a certain manner.”

Schwarzenegger used the phrase “severe cuts” nine times to describe what could happen.

He spoke of closing fire stations and reducing engine crews, releasing nearly 40,000 prison inmates, slashing $3.6 billion from education and laying off tens of thousands of school employees, borrowing billions from local governments and making further cuts to healthcare programs.

“None of those options are pleasant, that is the important thing for people to know,” he said.

The May 19 propositions are intended to have a direct impact on this year’s budget by changing the lottery and redirecting voter-allocated funds for early childhood education and mental health programs. They also would affect the state’s finances over the next several years, by extending recently enacted tax increases for an additional period.

The only measure that appears likely to pass is Proposition 1F, which would prevent elected state officials from receiving salary hikes in deficit years.

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